Wynn Resorts and Red Rock Resorts report first-quarter earnings Tuesday and Golden Entertainment on Wednesday, which could help clear up what’s taking place in Las Vegas casinos on the Strip and neighborhood properties.
After Caesars Entertainment and MGM Resorts International reported a divergence in their calls with Wall Street analysts, messages seem mixed.
Caesars’s earnings fell 4.7% in the first quarter at its Las Vegas properties, while adjusted earnings fell 15.7%. In addition, Boyd Gaming released its earnings and one analyst said Las Vegas locals EBITDAR missed consensus and declined 12.5% year over year. Boyd cited softness in the economy that impacts lower-tier players. That was echoed by Strip operators as well for lower-and-mid-tiered properties.
And in March, Nevada posted its first year-over-year decline in gaming revenue in eight months, including a 1.2% decline on the Strip.
MGM, meanwhile, reported a 3.6% increase in revenue at its Strip properties, while adjusted earnings fell just under 1%.
There’s then the backdrop of Deutsche Bank analyst Carlo Santarelli releasing a report last week, citing 12 straight quarters of gaming-revenue growth in Las Vegas since the market emerged from the pandemic. “But cracks have emerged,” he wrote. Specifically, the market has become more bifurcated, with the high end performing very well and being further augmented by events (Formula 1 and the Super Bowl), which have taken control of the narrative, while the lower- to mid-tier properties have largely peaked and begun to decline.”
Santarelli said the one constant has been the high-end strength, best evidenced by baccarat, which has essentially carried gross gaming revenue to positive comparisons.
“We believe this segment has reached a plateau and, despite competition for this customer continuing to heat up, is likely to fade, thereby exposing more clearly the underlying stagnation that is present in the market today.”
CBRE analyst John DeCree wrote a note to investors after Caesars earnings that Las Vegas is poised for a “bounce back” despite the disappointing first-quarter results. Several positive takeaways include a 97.6% occupancy that drove record first-quarter and food-and-beverage revenues.
“Looking ahead, each month of the second quarter is forecasted at 98% occupancy and cash room rates are up 8% to 14% depending on the month,” DeCree said. “Additionally, with the Con/Agg (convention) rotating out of the first quarter, the group room mix was down year over year. However, total group room mix for the year is expected to exceed a record 2023, meaning the next three quarters should see a year-over-year increase in group room nights. Overall, management expects Las Vegas EBITDAR to grow for the remainder of the year. However, it will likely take some above-average table luck to fully recoup the hole from the first quarter.”
In response to the MGM earnings, DeCree’s headline was “Tailwinds outpacing headwinds” in Las Vegas. He noted the skepticism that revenue can outpace wage increases as part of new union contracts and inflation this year, but added management remains confident adjusted earnings can grow.
“Although EBITDAR declined modestly in the first quarter, the outlook for the rest of the year remains upbeat,” DeCree said. “Rates and group bookings are pacing ahead in each of the next three quarters; year-over-year operating-expense increases are being lapped in June; and the third quarter presents an easier comp against last year’s cyberattack.”
DeCree said MGM’s Marriott partnership is “already bearing fruit,” yielding 140,000 bookings so far. While it’s still early, he added MGM is seeing about a $150 premium over displaced leisure customers from other channels.
“About two-thirds of that premium is coming from higher rates, while the balance is from higher spending on property,” DeCree said. “The biggest surprise so far has been the introduction of new group business from Marriott. With positive-demand indicators and help from the Marriott partnership, MGM remains confident in growing Las Vegas EBITDAR this year, despite the operating-expenses inflation. However, we continue to take a more conservative approach to the model, given lingering economic uncertainty.”
Santarelli said although MGM’s EBITDAR fell 1% year over year, it was better than their forecast, which was above consensus.
“We believe January was somewhat soft, though February, driven by the Super Bowl to some extent, firmed up nicely and March was solid,” Santarelli said. “Management noted the lower end remains softer, something that has been present for some time in our view. Promotions as a percentage of gross gaming revenue, which we’ve monitored for some time given the leading-indicator nature of the metric, was 44.6%, down materially from the fourth quarter, but expanded 90 basis points year over year.”
As for the outlook on the Strip, Santarelli said the third quarter will have the easiest growth, given the comparison to last year’s cyberattack that cost MGM $100 million, while the fourth quarter will be “the most challenging period” given the table hold comparison.
“We believe management anticipates some refinements around Formula 1 that will be additive in the fourth quarter of 2024,” Santarelli said.
Barry Jonas with Truist Securities cited MGM’s strength at its higher-end properties, which account for 75% to 80% of property-level EBITDAR, and noted some fatigue from its lower-end properties and customers.
Gaming consultant Brendan Bussmann, manager partner of B Global, said there will be greater context to what’s happening when earnings are released this week.
“The trajectory long term will be positive, but there’s a sign of cracks that you see with high fuel prices and other things along the way,” Bussmann said. “Inflation is a factor here. I’ve said it for months and I think it’s catching up.”
Bussmann said Caesars got hit “with everything imaginable” that could have happened and that seldom happens. He added that one month doesn’t make a pattern.
“We need to see what comes in the second quarter,” Bussmann said. “Obviously, looking at what we’ve seen coming in for April, there will be some push and pull that we’ve been experiencing off and on over the last several months. I would love to see roses all the time, but occasionally there’s a dip.”
Wynn Resorts’s catering to higher-end customers on the Strip should do well, Bussmann said. Red Rock Resorts, bolstered by the Durango Resort & Casino that opened in December, is more impacted by the local economy on lower-tier customers.
